Business owners have learned to be leery of fraud, thanks to the high-profile cases of Enron, Tyco and WorldCom and the resulting increase in accountability via the Sarbanes-Oxley Act. Despite heightened awareness, fraud remains all too prevalent in today’s business world.
The Association of Certified Fraud Examiners’ 2008 Report to the Nation on Occupational Fraud and Abuse reports that U.S. organizations lose 7 percent of annual revenues to fraud. That translates to approximately $994 billion in fraud losses as applied to the projected 2008 U.S. gross domestic product.
And don’t assume that major corporations are the most affected. The same report cited that businesses with 100 or fewer employees post a median loss of approximately $200,000 each year.
“Fraud affects all companies, and it’s not going away,” says Ed Gojara, CPA, CFE, an audit manager with Briggs & Veselka Co. “It is imperative that companies implement fraud prevention programs that feature thorough auditing procedures and frequent communication with employees.”
Smart Business spoke to Gojara about the types of fraud companies face and what measures can be taken to reduce risk.
What are the main types of fraud?
There are three primary types of occupational fraud: asset misappropriation, corruption and fraudulent statements.
- Asset misappropriation involves the theft or misuse of a company’s assets. For example, an employee opens an account and subsequently forges company checks payable to the account. Reduce the risk by mandating a review of every endorsed check. Also, be sure sensitive job duties, such as accounts receivable and accounts payable, are not assigned to the same employee.
- Corruption involves the wrongful use of influence in a business transaction to procure some benefit for the perpetrator or someone else, contrary to his or her duty to the company. For example, one of your employees is in cahoots with one of your vendor’s employees to retain or increase assets purchased. They work together to perpetrate the fraud and then split the funds. To reduce your risk, rotate purchasing responsibilities among employees or appoint someone outside the purchasing department to frequently review invoices.
- Fraudulent statements are the falsification of a company’s financial statements, either for personal gain within the business or to deceive external parties for the company’s gain. For example, an employee reports revenue sooner than it’s realized or fabricates it to qualify for an incentive. Reduce your risk by conducting thorough background checks and hiring a qualified professional to regularly perform a full-scale audit of your company. The auditor will closely study your finances and recommend specific internal controls.
Besides those specific methods, what other ways can a company avoid fraud?
You’ve got to build fraud prevention measures into your company policies. Implement a code of conduct and organizational protocols that explicitly define the company’s policies as well as the penalties for violating them. With policies and procedures in place, you’ll show employees that the organization is serious about fraud. You’ll also remove the excuse, ‘I didn’t know I couldn’t do that.’
Create a code of conduct handbook that every employee must read and sign. You’ll have legal documentation that employees know the rules and the consequences of breaking those rules. Also, address fraud issues with your employees regularly. Show your employees the challenges the company faces through an annual presentation. Help your employees understand that if the company is hurting, the employees will be hurt, as well. Don’t forget that honest employees are your best assets. Create an anonymous tip line so employees can report wrongdoers.
Finally, assign someone, preferably someone in a senior management position, to have the responsibility of assessing fraud risks throughout the company. This person may or may not delegate some of his or her responsibilities, but in the end, he or she has the ownership.
Should companies seek outside assistance in preventing fraud?
Your CPA firm and attorneys should have experience with fraud risks and can help you identify issues. No matter how strong you believe your internal control system to be, outside assistance is advised. Think about the locks on your doors. You can have the most sophisticated locks and security systems, but if someone has the key and knows the codes, he or she can get inside.
Remember, too, that people in your organization can get too friendly with one another. As a result, checks and balances may be overlooked. Even honest people can do dishonest things if put in the right situation. An outsider can help you examine your company’s structure and suggest the segregation of duties where appropriate.
ED GOJARA, CPA, CFE, is an audit manager with Briggs & Veselka Co. Reach him at email@example.com or (713) 667-9147.
For the last 20 years, Howard Tellepsen Jr. has been seeking professional help, not only for himself but for every employee in his company.
For Tellepsen, owner, chairman and CEO of Tellepsen Builders LP, this help comes in the form of an industrial psychologist who has become an essential member of the Tellepsen team.
This outsourced counselor performs compatibility tests with job candidates, facilitates team building and visits the company two days each month to help Tellepsen’s 345 employees manage personal and professional issues.
“It’s an ongoing commitment to have this industrial psychologist as a resource for our employees,” Tellepsen says.
The fourth-generation owned and operated construction company posted 2007 revenue of $283 million, and Tellepsen says that making a counselor available to employees has reinforced his company’s philosophy: Treat everyone with mutual trust and respect. He says this leads to a feeling of ownership, which fosters an atmosphere of empowerment.
Smart Business spoke with Tellepsen about how he builds the foundation for his company’s greatest asset its employees.
Hire to fit your culture. We work closely with our industrial psychologist in terms of recruiting employees in the first place. Culture is very important here, and it’s based on values.
The most important value mutual trust and respect is how you treat your employees, and it’s how you get that same trust and respect from them in return. Mutual trust and respect is how you want them to conduct their business with the people they deal with internally and externally.
These tests that are given by our industrial psychologist have allowed us to identify people who have a high probability of fitting into our culture and growing with the company. We have very low turnover because we spend time on the front end making sure that we are the right culture for them. It’s important to make sure that employees are going to fit into our culture because our company was built in 1909, and our culture is well established.
When you have that kind of culture and you have employees who fit that culture, it makes it easier to be able to empower them because you can trust them. Somebody certainly might be smart enough to work here and they might have experience, but they may not be able to thrive in our culture.
When they understand the culture, it allows us to empower them to be responsible for their actions, and holding them accountable is part of the empowerment. You have the right people in the first place, and then they understand that’s how we function in terms of giving a lot of responsibility to the employees. We allow them to make decisions because we want them to take ownership and to be held accountable.
Don’t take chances. If an employee isn’t compatible with a company’s culture, especially when the company has a very strong culture, you risk a low-performing, unhappy employee, and that is not healthy to the rest of the employees. You then risk a short-term employee who does-n’t stay.
Try to make long-term decisions rather than short-term decisions. Our people are our most important asset, so it’s a long-term decision to spend that time on the front end having them test with our industrial psychologist. It’s a real investment.
You’re only as effective as your people. I don’t know how you could not make a long-term decision on your people because they are the ones who are representing you every single day to your clients. Your company becomes in the eyes of your clients who your employees are, how they conduct their business and how they treat their customers.
Provide opportunities for feedback. Employees appreciate the time that we’re taking on the front end, and then every single month, there’s an opportunity to see this industrial psychologist. Not every employee gets to see him each time he’s here, but we continue to provide that resource throughout their career at Tellepsen and show them that we have a caring environment.
Each session that employee has with our industrial psychologist is confidential, but if there are growth issues from a personal side or a business side and the employee gives the approval, the industrial psychologist will double back to the employee’s supervisor, and then all three of them will sit down and talk about it.
Having a counselor available to our employees provides another avenue for them to communicate their interests and share what’s on their mind. Over a period of time, a confidential environment is created where the employees are comfortable, and they feel that the company cares about them.
Use that information as a springboard. We translate input we receive from the industrial psychologist, and then during our annual evaluation with each employee, we discuss the employee’s development what they would like to learn about and what areas they would like to grow in and we establish a plan for them to take courses, attend seminars, go to conferences whatever it takes for them to accomplish the agreed-upon growth issues that the company feels would be helpful for them.
This continuous process is reviewed on an annual basis to see how we’re doing, and that’s the accountability part. The company is accountable to the employee; we need to help them and give them the tools to continue to grow personally and professionally.
HOW TO REACH: Tellepsen Builders LP, (281) 447-8100 or www.tellepsen.com
If you’ve acquired, constructed or improved a building in the last three years, you may want to consider a cost segregation study. A cost segregation study identifies and reclassifies personal property assets (nonstructural elements, exterior land improvements and indirect construction costs) to shorten the depreciation time for taxation purposes, which reduces current income tax obligations.
Analysis of capital expenditures is used to determine appropriate asset classifications. Cost segregation identifies building costs and reclassifies them to permit a shorter, accelerated method of depreciation for certain building costs. Costs for nonstructural elements (wall coverings, carpet, accent lighting, portions of the electrical system) and exterior site improvements (sidewalks and landscaping) can often be depreciated over five, seven or 15 years.
“Cost segregation studies can be very beneficial,” says Kevin Lovins, CPA, a tax shareholder with Briggs & Veselka Co. “Tax depreciation deduction is accelerated, which reduces income taxes and increases cash flow. It should be noted, however, that income taxes are only deferred, not eliminated.”
Also, component costs are usually not easily identifiable and the IRS will not allow a taxpayer to estimate the components.
Smart Business asked Lovins about cost segregation studies, how to conduct one and why they are so helpful in today’s economy.
What problems can a company face when acquiring, purchasing or improving real estate property?
When the individual component costs of a building are unavailable, the costs are generally classified as a 27.5- or 39-year property. The acceleration of depreciation expense is missed when the entire costs of a building is classified this way. Generally, the individual component costs of acquiring, constructing or improving a building are not readily available. When purchasing a building, the cost is usually just a lump-sum amount. Since depreciation expense is missed, taxes are accelerated and cash flow is negatively impacted.
How does a cost segregation study work?
Usually, an accountant and an engineer will analyze architectural drawings, mechanical and electrical plans and other blueprints to segregate the structural and general building electrical and mechanical components from those linked to personal property. The study also allocates ‘soft costs,’ such as architect and engineering fees, to all components of the building. While the building itself and any structural components are required to be depreciated over 27.5 or 39 years, parts of a building, including tangible personal property and land improvements, may qualify for an accelerated deprecation method over a much shorter recovery period (five, seven or 15 years). A cost segregation study identifies costs eligible for accelerated depreciation method over a shorter recovery period. By identifying costs eligible for accelerated tax depreciation expense, current taxes are reduced, which improves cash flow. Taxes are only deferred, not eliminated.
What are the benefits?
Cost segregation studies are performed by trained tax and engineering professionals.
The professionals separate the individual cost components by analyzing the construction drawings and methods and applying their knowledge of the internal revenue code, revenue rulings and court cases. A cost segregation study not only identifies the component parts of a building, but also substantiates the allocation of cost of a building among the individual components.
In addition to providing tax relief, a cost segregation study can benefit businesses by maximizing tax savings by adjusting the timing of deductions. When an asset’s life is shortened, depreciation expense is accelerated and tax payments are decreased during the early stages of a property’s life. This, in turn, releases cash for investment opportunities or current operating needs.
A cost segregation study also creates an audit trail. Improper documentation of cost and asset classifications can lead to an unfavorable audit adjustment. A properly documented cost segregation helps resolve IRS inquiries at the earliest stages.
Finally, taxpayers can capture immediate retroactive savings on property added since 1987. Previous rules, which provided a four-year, catch-up period for retroactive savings, have been amended to allow taxpayers to take the entire amount of the adjustment in the year the cost segregation study is completed. This opportunity to recapture unrecognized depreciation in one year presents an opportunity to perform retroactive cost segregation analyses on older properties to increase cash flow in the current year.
What can go wrong if a cost segregation study isn’t done?
If a taxpayer does not obtain a cost segregation study from a qualified professional, the taxpayer may not be able to substantiate his or her tax position upon challenge from the Internal Revenue Service (IRS). The IRS does not allow the taxpayer to estimate the individual component costs.
KEVIN LOVINS, CPA, is a tax shareholder with Briggs & Veselka Co. Reach him at firstname.lastname@example.org or (713) 667-9147.
U.S. staffing firms employ almost 3 million people per day across all industries, according to a survey conducted by the American Staffing Association (www.americanstaffing.net). This vast work force can provide a pool of talent that can be tapped into by businesses to fill a variety of part- and full-time jobs from secretarial to middle-management positions.
“Tapping into this resource allows a business to ramp up at a moment’s notice,” says David Lemoine, Regional Vice President for Talent Tree, a staffing company based in Houston.
Smart Business spoke with Lemoine about the steps you can take to select the right staffing firm for your business.
In what industries/jobs do staffing firms typically specialize?
The main categories are as follows:
- Office and clerical
- Accounting and payroll
- Information technology
- Nursing and health care
Light industrial (jobs such as forklift driver, picker, packer)
- Skill craft workers (such as manufacturing plant workers)
- C-level executives
Staffing firms can sometimes specialize in two or three of these areas. But it is rare that a staffing company can provide qualified employees for all these positions. Often, a business may have to rely on more than one staffing company for all its needs.
What are the steps to consider when selecting a firm?
Your human resources department can go through these steps. For smaller firms, this responsibility can fall to the general or office manager.
- Meet face-to-face with representatives of the staffing firm. This is important to start developing a relationship with the firm and for its representatives to get a good understanding of your business and its culture.
- Get references of current customers. Ask current clients how the staffing firm has helped, particularly with customized solutions to unique problems.
- Make sure the firm is stable and credible. Do not select a firm that has just started in the business. Make sure there is low turnover internally so that you can ensure that you will have continuity with representatives.
- Have the firm give you a checklist of what it provides with its services. Some important elements include: background and reference checks, social security verification, drug screening, workers’ compensation certificates, standard terms and condition of contract.
What are some red flags to look out for when selecting a staffing firm?
The biggest red flag is when a staffing firm competes solely on price. The fact is that costs and profit margins are pretty much the same for all staffing companies. If a staffing firm is coming in at 15 percent less than its competitors, you bet they are cutting costs and making shortcuts somewhere, such as not providing drug screenings or background checks.
What can a business owner do if the firm is not the right fit or the people they are sending are not a good fit?
This is why it is important to take time with the staffing company on the front end. If a fit isn’t right, you need to call the staffing company right away and have the employee replaced.
You also need to have a conversation about what went wrong and why. Was there a miscommunication? How did the staffing company miss the mark? Was more training needed? Did the employee not have enough experience? You can opt to give the staffing firm another chance to correct the situation. If the same mistake happens again, you need to move your business to another firm.
What distinguishes an average staffing firm from one that is superior?
Many businesses don’t really understand what a staffing firm can offer. They believe staffing firms exist to offer short-term solutions to pressing employment needs. But businesses need to realize that the best staffing firms can provide a wealth of advice that is outside the realm of simply filling a job slot.
For example, firms can provide a wealth of reporting statistics, such as how much a business is spending on overtime (and if the money would be better spent in hiring more employees) and the cost of vacancy. The key is to mine the firm for this information; a representative can often help a business uncover problems involving human capital issues, such as high turnover rates. This opens up possibilities for business owners to understand their business at a deeper level, and make human capital decisions based on the numbers, rather than instinct.
Regional Vice President
Education: Engineering degree, United States Military Academy, West Point; MBA, Harvard Business School
Military service: Served 10 years of active duty in the Army, including two tours in Vietnam (1966-67 and 1970-71)
What is the best business lesson you’ve learned?
To stay focused and rely on people. Get the right people in the right seats on the bus.
What traits or skills are essential for a business leader?
Honesty and integrity and energy. You need to have the ability to lead and manage through others and work through layers. You can’t isolate yourself at the top. You need to be able to completely understand your company and work through the different layers. Besides, it’s no fun to be isolated at the top, for me anyway.
What are some universal truths you’ve learned about leadership?
You need to have focus. You can’t just leave things on autopilot. You need to treat others as you would like to be treated, but there is a necessity to be out front and lead. Not everyone wants to lead. There is a necessity for leadership because organizations don’t move on their own. They need to be led.
What is your definition of success?
Accomplishing something that has a broader positive impact than just for me. Something that makes a difference for me and for others.
The days of finding the right job candidate by simply taking out a classified ad in your local newspaper are over. Today, serious job recruiters must attend networking events, surf the Internet’s job boards and actively participate in business and social virtual communities, such as LinkedIn, in order to root out the right candidate.
“Businesses need to build a good employment ‘brand’ and use the best recruiting techniques to woo candidates,” says Ruth McCurdy, Vice President for Corporate Connections at Talent Tree, a staffing company based in Houston.
Smart Business spoke with McCurdy about some of the top recruiting techniques business can use to rope in top talent.
What are some of the assumptions businesses might make about recruiting talent that is counterproductive to finding the right candidate?
In fields where companies are vying for the same candidate, it helps to get creative. There are many good workers looking for jobs but who may not be in a competitive industry. Many of these people can be retained. College graduates with little or no experience are often excellent candidates for many positions. In this market, business leaders need to have flexibility and look more at the candidate’s ability to fit into the corporate culture and his or her ability to be trained.
Another opportunity that is often overlooked is passive job candidates that is, people not currently in the market for a new job. In the right circumstances, these workers can be persuaded by a new and better opportunity. That’s where a company’s strength of its ‘employment brand’ comes into play.
Can you explain how a business develops an employment brand?
It is similar to a marketing brand, which companies already have. Look at Google it has a strong employment brand. The company has been in the press enough so that the average job candidate has heard about the perks that come along with working for that company and what the corporate culture is like. Employment branding is a mindset that changes a business owner or CEO’s thought process about recruiting: It is not about filling open positions but about constantly selling candidates the idea of working for your great company. This is done effectively through positive stories told in word-of-mouth networking either in person and online and through your company Web site. It is important to have a recruiting page on the site for this kind of information. A business needs to put as much an emphasis on getting the right people in the door as getting customers.
In addition to developing a strong employment brand, what are other top recruiting techniques businesses need to use?
- Employee referrals (with incentives given)
- External referrals (through networking)
- Continuous online sourcing (job boards and other business networking sites)
- Posting openings (online and off)
Could you tell us more about online recruiting?
Businesses need to actively engage in social and business networking sites because people who are connecting online know people who are looking for work. Some networking sites have job boards and others have subgroups for job networking. It is the same idea of networking in a community, such as a Chamber of Commerce gathering or an industry event, except broader. The Internet allows businesses to open up to the entire world and connect with potential job candidates. Plus, many of these sites are free.
Using other techniques, such as the Google alert tool, can be a wonderful source of information. For example, you can set an alert for ‘layoffs’ and the name of your industry or field, or even a company, to get the heads-up on when candidates will be entering the job market. You can also set key words for what you are looking for in a candidate’s resume. You will be amazed at the kinds of valuable information you get in real time.
What about the good, old-fashioned classified ad?
It used to be that classified advertising was the end all, but this way of looking for candidates has become very expensive and, frankly, not broad enough. Research has shown that most job candidates go to their computer first when they are looking for work.
Recruiting for the right candidate today has to be intentional and strategic, and using more than one method is the best way to do this. Businesses have to be proactive not reactive. A proactive approach will build a candidate pool for when you are ready to recruit; the old reactive approach always leaves businesses scrambling to fill a slot.
Education: B.S., business finance, California State University, Long Beach
First job: I was a recreation coach when I was 15 or 16 years old. I had to make up games for kids who where dropped off at a high school each day. So I came up with goofy games like Frisbee football and that kind of stuff.
What is the best business lesson you have learned?
There are no shortcuts. So-called ‘overnight success’ takes 15 years, for goodness’ sake. So you have to get in there and work it. There are absolutely no shortcuts.
What traits or skills are essential for a business leader?
Being open-minded, leading by example, being a person of great character and being somebody people would want to follow naturally because you stand for something.
Also, you need stamina, both physically and emotionally. You have to be able to pull from a well deep within you at times and give employees something they feel they can connect with. That’s a real secret ingredient for great leaders.
What are some universal truths you have learned about leadership?
The higher you go, the more people you serve. That fact really helps you to prioritize what you do each day. You also need good mentors, you need someone to talk to, see all your flaws but still know your intentions are good. In that respect, mentors are invaluable.
What is your definition of success?
What would really be great is if hundreds of people in this organization, when they retire, would feel like they made a huge contribution to CEVA. When I retire, I’d know that at the same exact moment, people are ready to step in who will run things even better than those of us currently running the company did. That would be cool.
Information is one of the best tools for getting through a difficult situation, says Terry Andrus.
To illustrate his point, the president of CompleteRx Ltd. tells the story of an airline pilot who realized that his landing gear was not coming down as he made his approach to land the plane. The situation could have incited panic among the passengers, but the pilot got on the loudspeaker and told passengers exactly what he was going to do every step of the way. And when he needed to make an emergency landing, the passengers were ready.
Andrus says the same tactic can be applied to business. As long as people know what is happening and don’t feel that you’re keeping things from them, they are going to follow you if they believe in what you are doing.
By being open with his 500 employees and keeping them informed every step of the way, Andrus led the provider of pharmacy management services to 2007 revenue of $114.7 million.
Smart Business spoke with Andrus about how to keep everyone on the same page.
Talk to your employees. Understand what your people need and be in touch with them and let them know that you are accessible. In the corporate office, I’ll spend probably 20 percent of my day going by and visiting with each of the employees finding out what’s ticking with them.
It doesn’t necessarily have to be business, just listening to them and letting them know that I’m accessible.
Consider having a lottery system for a lunch with the CEO where you bring lunch in and tell them about yourself so it’s not some secret. Things about you personally, not professional accomplishments, so they get a feel of who you are. Have them tell you things about them, where they grew up, where they went to school, what’s their favorite sport.
Once you’ve broken the ice, allow each one of them to ask one burning question and answer it openly and honestly. If you don’t have a good answer for it, tell them, ‘It’s a problem we’re trying to solve right now.’
Ask them if they have a suggestion, and if it’s a good one, use it.
Respond to feedback. We actually make changes based on our employees and what they say. If you do a survey and you don’t do anything about what you find out, then you shouldn’t have done the survey in the first place. It’s just lip service.
Give them an update on what’s going on. Let them have free rein to ask any question they want. Sometimes, that can get fun. Once they feel comfortable asking questions, the questions just flow.
We make it really comfortable for them to ask questions.
It’s not monitored in any way. They can ask me anything.
Stay true to your word. You go out there and do what you say you’re going to do. If for some reason something isn’t going to turn out the way that you hoped for, for whatever reason, you need to communicate that to your customer.
Explain to them what you’re going to do to fix it, and always stand behind your word.
Express your values. We sit down with our hospital partners, and we find out what’s valuable to them and what they would like to see us accomplish. We commit it to a document or value contract, and we meet with them. Some only like to meet quarterly, but a lot of them want to meet monthly.
We tell them where we’re at and where our progress is. If their priorities change, we’re on top of it, and we’re not behind the eight ball trying to figure out what could we have done to solve the problem.
We’re in constant communication with them. They have a copy of that contract, and we have it, and we’re both on the same sheet of music, if you will, to know what the issues are out there and where we’re at in solving those problems.
Make sure you’re really leading. Good leaders are also people who can inspire. If you’re not inspiring and leading people to follow you in others words, if they don’t understand where you’re headed and what your vision is and how you’re going to get there you’re just taking a walk.
You’re not actually leading anybody. Communicate where you’re going so that people understand what’s going on, where they are headed, how they’re going to get there and what tools you’re going to use to get there, and constant communication. Let them know what’s going on so people don’t create their own reality.
As long as your people know what’s going on and there are no surprises and they don’t feel like you’re hiding things from them, they are going to follow you if they believe in what you are doing.
Don’t get tunnel vision. We want to create the very best decision. You find within one problem [that] there are multiple problems that can exist, and you have to break it down. It’s sort of like diagnosing an engine problem. Usually, it’s not just one problem that’s causing your car not to run.
What we need to do is find out where the broken parts are and replace them, and then find out if they are maintenance issues and put in a maintenance program to make sure that we don’t have the same problems come back again.
Once people understand where the problems exist and we truly focus on solving those problems, rare is the situation where everybody is not in agreement.
HOW TO REACH: CompleteRx Ltd., (713) 355-1196 or www.completerx.com
As the housing industry continues to struggle in the face of a declining economy, much has been made of how lending institutions have hurt themselves through questionable mortgages to people who were not in a position to be able to pay the loans back. If these institutions had practiced good credit administration, perhaps they wouldn’t be in the position they find themselves today.
“Sound credit quality assures customers that their deposits are safe and sound,” says Rhonda Harper, an assistant vice president of banking at Wells Fargo in Houston. “That’s very important in our industry in this day and time.”
Smart Business talked to Harper about how good administration can take some of the risks out of banking.
What constitutes good credit administration?
There are several components. No. 1 is sound credit quality. The soundness of a financial institution offers its customers some assurance that their deposits are safe and their funds are available for lending in the communities in which they operate. We’ve all seen the current industry deal with institutions such as Bears Stearns and how its situation has shaken the industry to its foundation.
Another component is managing your customers’ expectations and being your customers’ advocate by communicating with them in a timely manner and getting forthright responses to them so that they understand the expectations from the start. As a bank, we follow up; we don’t just close a loan and forget about them. Periodically, we contact customers to see how things are going and let them know that we’re there for them and that they can let us know if they need anything.
Finally, it’s knowing your customer is key, asking questions, listening to customers and helping them uncover their needs. Making periodic visits can provide a lot of insight and a lot of information you couldn’t get over the phone.
What kind of safeguards can help make sure these components happen?
First is a good sound credit policy. Limit your losses and institute credit policies that are going to give you a way to recognize early warning signs. If you get periodic financial statements from your customers you should review them in a timely manner and address anything that may be of concern.
Once you set your guidelines, stick with them. Sometimes, we approve transactions on an exception basis, and when you do that, you need to be sure that the risk is mitigated with sound judgment. A consistent application of your underwriting criteria is one way to be sure the risk is within a safe range.
What are some common mistakes that are made?
Not following your credit policy guidelines is huge, along with not reviewing the financials in a timely manner once you receive them from your customers and ignoring early warning signs that pop up. If customers have repeated overdrafts and are fully advanced on their line of credit, that might be a sign that you need to get out and pay them a visit. Get a current copy of their financial statement and ask questions to see what’s going on.
A lot of times, if we recognize the signs and get out there early enough, we can prevent them from maybe digging a deeper hole. Banking is a working relationship, and maybe we have a product or service that the customer can benefit from before it’s too late. To me, it’s good old-fashioned common sense and following your guidelines.
What can be done if an error is committed?
First, you need to fix the problem and educate your staff and your bankers. We have an approval delegation with a chain of approvers to help the bankers make sure we’re aware of everything we need to know about the credit. It’s very important to have another set of eyes, a bit further removed, that can look at the credit and pick up something the others may have missed.
Again, one of the most important things to do is to step back and periodically look at your portfolio to see what you’ve missed and then to take appropriate action to correct the mistake and make it right.
Does the size of the company reflect the amount of risk for a loan?
You can have a different set of standards for different-sized loans. If you’re talking about a deal that’s more than $2 million, you may require periodic financial reports, quarterly information and a different set of rules because your risk is increased.
RHONDA HARPER is an assistant vice president of banking at Wells Fargo in Houston. Reach her at (713) 209-6647 or Rhonda.Harper@wellsfargo.com.
Assistant vice president of banking
If you’re going to get the right things out of employees, you have to put the right ingredients in first.
It’s an idea that has become one of the main pillars of Maura Walsh’s leadership philosophy as the president of HCA Gulf Coast Division, a 12,000-employee branch of Hospital Corp. of America.
Customer service, maximum efficiency, workplace safety or whatever it is you want your employees to value and embrace, you must first set the example at the top. Walsh says you do that through communication both speaking and listening and actively engaging your work force in person.
“It’s not just important but essential that leadership be visible within the organization,” Walsh says. “Leaders need to get to know their employees, and the best way to do that is to walk around, talk to them and give the employees the sense that you’re approachable. You cannot know what is going on in your organization sitting behind a desk. You need to be out talking to employees, asking their opinions, getting their feedback.”
Walking among your employees, asking them questions about their jobs, even casually bantering with them about their weekend plans, helps give employees a sense of confidence in your leadership ability, that you want to be “in the know” and actively engaged in what is happening on the front lines.
Walsh says it also helps tear down the walls that can exist between management and employees. If you can overcome the intimidation that can occur when an employee reaches out to management, you can make strides toward unifying your company around common goals.
As the president of a hospital group, and former president of a hospital, Walsh has learned a thing or two about rallying diverse groups everyone from doctors to nurses to office staffers around a single vision and a set of core values. Walsh says it can be difficult to get different groups to read from the same script, but it’s essential to a company’s long-term survival.
To bring a company together, you must communicate. However, the most important aspect of communication does-n’t start with you. It starts with your employees.
Walsh says you need to find out what motivates your employees, what drives them to come to work each day and to try their best.
She says you shouldn’t assume it’s a one-size-fits-all proposition. Personality, background, job type, all of it affects what truly motivates each employee.
But Walsh goes even a step beyond that. She wants to know what “excites” her employees about their work.
“As you work with your people, you get to see what makes them excited every day,” she says. “For instance, most CEOs are motivated by challenges. On the CEO ranks, there are a lot of commonalities, but you really need to get to know your individual employees, understand what gets them motivated to do their work.”
Just as a manufacturing company is composed of administrators, department heads, manual laborers and other employees whose job descriptions differ from department to department, a hospital has doctors, nurses, cooks, janitors, secretaries among its ranks. Getting to know different jobs, and the people who fill those jobs, is a common denominator among executives who seek to strengthen the relationships within their companies.
Walsh says you need to be able to get on the same level with each department by putting yourself, at least mentally, in the place of the people who work there.
“You need to hit all levels within the organization,” she says. “It’s important to understand what the more entry-level workers think, but it’s just as important to understand what those more up the ladder think. In our case, what our nurses are thinking, what our technicians are thinking, and it’s especially essential to understand what our physicians are thinking and feeling.
“Each employee has different priorities. Here, what is important to someone in the operating room is probably different than for someone who is working in the intensive care unit versus someone who is working in the lab. Obviously, there is always going to be some commonalities throughout departments, but each department, each unit of a business, will have many of their own unique concerns and ideas.”
Drilling down to that level with your employees requires you to go beyond simply noting that you have an open-door policy. You need to get beyond the open-door policy, make personal connections and give employees a reason to connect with you.
“Most employees would not feel comfortable walking into the CEO’s office to let them know what might be happening on their unit that particular day,” Walsh says. “The more visible the leadership team is, the more approachable they are to employees, the more likely employees are going to share with them important information.
“Having an open-door policy is great, but it doesn’t take the place of walking the halls and making sure the folks out there on the front lines know that you truly do care about them and do understand that you want to know what you can do to make the workplace better.”
Enable people to achieve
Walsh says employees need to know that management has placed them in the best position to succeed within the company.
Everyone in the organization from senior management down has to have his or her talent leveraged for maximum effect.
She says the challenge begins at the job interview and never really stops. As a leader, you have to remain constantly on alert for ways that you can enable your employees to achieve more success.
“That’s a challenge for anyone,” Walsh says. “You can only get so much information out of an interview. If you have folks who know the individual you’re interviewing, that’s what I find very helpful. I find just using references, talking to individuals who have worked with the person, is helpful. You might think you’re only going to get a one-sided opinion, but oftentimes, when you’ve talked with people who have worked with an individual, they’ll give you honest feedback about what kind of person they are to work with.”
Once a candidate has been hired at HCA Gulf Coast, Walsh and her leadership team take proactive steps to keep their best and brightest performers, and that includes a chief operating officer development program designed to help the company fill management positions from within.
Familiarity is another key ingredient in building unity within an organization. With that in mind, Walsh attempts to fill management positions with in-house candidates before looking outside the organization.
It isn’t the ideal course of action in every situation, but internal promotion is preferable to Walsh for several reasons: It saves management the task of having to train a new employee from the start, it helps bridge the gap between management and employees when the manager is already familiar with a company’s people and practices, and it gives high performers long-term goals.
“Any organization that does long-term planning should always want to look at individuals within the company, individuals within each division and what their work patterns are going to be moving forward,” Walsh says. “If I feel I’m going to have opportunities for people three to five years down the road, I want to be sure I have the right caliber of individuals to put in those positions. You always want a talent pool your organization can draw from.”
Walsh says she looks for several key traits in people who aspire to management-level positions at HCA Gulf Coast, traits that identify an individual as a unifier and consensus-builder.
Management-level candidates at HCA Gulf Coast, perhaps most importantly, must be willing to look in the mirror and self-assess their own areas of weakness, something with which Walsh has had firsthand experience during her administrative career.
“I was, as many people are, not comfortable with speaking in public,” she says. “It’s something that does not come easily to a lot of individuals, yet in a leadership role, that’s an important skill.”
Walsh overcame her public-speaking obstacle by continually placing herself in situations where she was forced to address an audience. She wants to see the same willingness to tackle personal challenges out of her managers at HCA Gulf Coast.
“Communication skills are part of your makeup,” she says. “Some of us are naturally effective communicators, others are not. But even though we all have our strengths and weaknesses, the more we work in our profession, the more opportunities we have to fine-tune our skills and perfect them.”
When you have finally achieved your goal of a company united around a common vision and a set of core values, your job hasn’t ended. When you arrive at your goal, your job as a CEO shifts to maintenance.
Walsh says you must keep your employees focused on the company’s goals, which is a constant task. If you aren’t vigilant about correcting those who veer off course and celebrating those who set good examples, your new culture will quickly start to erode.
She says it boils down to one word: recognition. You must recognize what your employees are doing and acknowledge their contributions to making your vision a reality.
One of the best ways to recognize an employee is to do it in person. Walsh says it doesn’t have to be a spectacle. You don’t have to gather your managers around a person’s desk and sing a song like the waiters who bring out the slice of birthday cake at your favorite family-style restaurant. Sometimes, it can be as simple as a written note. But you can’t wait weeks until a block of time opens in your schedule.
Walsh says recognition is a dish best served fresh. “When I was working in a hospital with less direct responsibility, I was a firm believer in personal notes,” she says. “I would send a number of personal notes to employees every week. I can remember going to an employee’s office about a year later after I had left the hospital and saw one of the notes I had sent still on their bookshelf.
“I don’t know if I do (recognize people) often enough. I know our lives are very, very busy, and we don’t, as leaders, always take the time to step back and recognize the individuals who are making a difference. But when someone sees a note you’ve written, it sends a message that you know recognition is important. Everyone likes to be recognized for what they do, and I think, oftentimes, we underestimate the value of just one-onone telling someone you appreciate what they’ve done.” <<
HOW TO REACH: HCA Gulf Coast Division, www.hcahouston.com